High costs to hurt FDI in aviation

NEW DELHI: The reason for lukewarm response from big global airlines for investing in Indian carriers even if FDI in the sector is opened up for them can be understood now. A survey by Indian carriers based on IATA database has shown that while operating expenses in India are much higher than many developed parts of the world, airfares here are lower by between 113% and 280%. This massive gap in cost and revenue has led to airlines in Indian bleeding profusely and struggling to survive.

The survey has compared domestic airfares in Australia , Canada, China, UK and US with those in India. In each of the distance-based slabs compared, fares are way higher than India. And, the survey noted that "operating costs in India are much higher than these countries because of taxation on jet fuel, rupee depreciation and (high) airport charges. There is complete mismatch between fares and costs, thus contributing to significant losses for Indian carriers."

This study has alarmed the aviation ministry, especially from the cost side as India levies prohibitively high taxes on the sector. "We are trying to get taxes on jet fuel rationalized and resolve the issue of service tax on air travel. The situation needs to be addressed," aviation minister Ajit Singh said.

According to the Centre for Asia Pacific Aviation (CAPA ), accumulated losses and debts of big players like Jet group, Air India, Kingfisher and SpiceJet were Rs 1.2 lakh crore on September 30, 2011. Accumulated airline losses till September 30 were almost Rs 38,000 crore. Bank loans amount to Rs 70,000 crore, with an additional Rs 10,000 owed to vendors by the fullservice carriers, estimates CAPA.

A senior airline official said: "The time has come for the government to decide whether India needs private airlines or whether it should just keep Air India alive by pumping thousands of crores of public money into it. Airlines will not be able to survive for too long unless operating costs are not lowered by rationalizing taxes."

Airlines have told the ministry that aircraft leasing companies are 'nervous' about giving planes to Indian carriers — especially after the dispute some of them had with cash-strapped Kingfisher . "Banks are not willing to lend us more working capital . Raising money from the market is no longer an option as airlines are now considered an unviable business. Airport operators are being allowed to raise charges by 350%," said another official.